A simplified, more stable
tariff structure would increase the efficiency of SACU's trade, enhance its ability
to fulfil its multilateral obligations, facilitate the negotiation of new or expanded
regional agreements and help SACU members attract more foreign investment.

Simpler,
stable tariffs should help SACU members realize gains from trade Back
to top

trade policy reviews of SACU member states -
Botswana, Lesotho, Namibia, South Africa and Swaziland -

A simplified, more stable tariff structure would
increase the efficiency of SACU's trade, enhance its ability to fulfil its
multilateral obligations, facilitate the negotiation of new or expanded regional
agreements and help SACU members attract more foreign investment.

A new set of reports prepared by the WTO Secretariat
on the trade practices and policies of the five SACU members - Botswana, Lesotho, Namibia,
South Africa and Swaziland - notes that SACU's external tariff, until now determined
by South Africa, is extremely complex and often fluctuates, sometimes hampering the export
interests of individual SACU members. Separate reports on each of the members' trade
policies and practices (see below for salient points) have been prepared by the WTO
Secretariat. The reports along with policy statements prepared by each of the five
governments will be reviewed by the WTO's Trade Policy Review Body on 21, 22 and 23 April
1998. It is the first time since the Trade Policy Review Mechanism entered into force in
1989 that the GATT or the WTO has carried out a grouped review of developing countries.

According to the Secretariat reports, the SACU
agreement is the principal treaty governing the common trade policy of SACU member
countries. Under the agreement, members apply to imports customs, excise, sales,
anti-dumping, countervailing and safeguard duties, and other related laws set by South
Africa, by far the largest trading partner in the customs union. The agreement
provides for duty-free circulation of goods within the five-country customs union and
grants transit rights across South African territory. Duties collected by SACU members are
pooled in a common fund and subsequently distributed to members by South Africa. The
reports note that the agreement is currently under re-negotiation and that SACU members
are trying to revise the revenue-sharing formula and the management of the customs union.

SACU's common external tariff averaged some 15 per
cent in June 1997. Some 44 per cent of tariff lines, particularly on inputs of
capital goods and products that are not manufactured and do not have substitutes in South
Africa, bear a zero rate whereas goods produced, or with substitutes produced, in South
Africa generally bear relatively high rates. The reports add that the highest
average tariff is in manufacturing with 15.6%, compared with 5.6% in agriculture and 1.4%
in mining and quarrying. The structure of the common external tariff, determined by South
Africa, primarily reflects its policy priorities and industrial structure. The
reports note that the existing tariff structure sometimes imposes an anti-export bias on
members' industries. SACU members, other than South Africa, are also concerned by the
complexity of the SACU tariff regime comprising specific, ad valorem, mixed, compound and
formula duties, and its frequent changes. Both factors are cited as impediments to
implementing and administering the tariff.

The reports note, however, that the Tariff
Rationalization Process (TRP) being undertaken by South Africa should substantially
simplify SACU's tariff structure. The TRP may, nevertheless, lead to increased tariff
escalation and result in a higher effective rate of protection.

The five SACU countries are also members of the
South African Development Community (SADC), an agreement which sets out a timetable for
the creation of a free-trade area encompassing the free movement of capital, goods,
services and labour. SADC, an agreement which is to have its own dispute settlement
mechanism, is also a forum for political cooperation. SADC members, excluding South
Africa, also benefit from preferential market access to the European Union under the Lomé
Convention.

According to the WTO reports, the network of regional and preferential trade agreements
within the southern African area and between southern Africa and Europe presents a number
of challenges to policy makers in the region. While SACU must still determine its own
structure, it has also to consider its operational relations with SADC. Relations
between Botswana, Lesotho, Namibia and Swaziland (BLNS) with South Africa on the one hand,
and South Africa's relations under its coming bilateral trade agreement with the European
Union, on the other, are a third piece of the regional and preferential trade puzzle.
There is a risk, the reports say, that the evolution of this complex set of relations
could create a structure of tariffs, preferences and rules of origin that could well lead
to future trade distortion.

Below are the summary highlights of the WTO
Secretariat reports. Copies of the reports may be obtained from the WTO's website (under
Trade Policy Review Body) or from the WTO's Information and Media Relations Division.

South Africa

The Government of South Africa embarked on new
economic and trade reforms following the end of apartheid and the holding of multi-party
elections in 1994. It is now rapidly re-integrating its economy into the multilateral
trading system. While the WTO Secretariat report notes that South Africa's five-year trade
liberalization programme will help its products compete internationally, the report states
that policy makers should continue with plans to simplify and coordinate the various
aspects of trade policy, especially the tariff structure.

The South African government hopes to increase
investment and re-orientate resources away from the highly capital-intensive industrial
structure which characterized the economy throughout much of the apartheid era. The report
says that South Africa has made decisive moves towards outward orientation with a focus on
export promotion by means of a wide variety of incentives, such as tariff concessions and
credit facilities. The main objective of South Africa's economic policy is to enhance the
value of labour-intensive products with a view to reducing the level of unemployment (29
per cent of the economically active population). Tariffs and "supply-side
measures" are South Africa's main trade policy instruments. Quantitative restrictions
have been dismantled to a large degree.

Mining and related activities remain at the centre
of the South African economy and account for some 40% of earnings from merchandise
exports. As the backbone of the economy, the mining and quarrying sector receives the
largest share of financial assistance. The manufacturing sector, largely centred around
mineral processing, contributes nearly 25% of GDP. However, the report says, the
international competitiveness of manufacturing suffers from a lack of skilled labour. This
sector is protected mainly by tariffs, which average nearly 16%. Textiles, clothing and
related items are also among the most tariff-protected products. Services are the largest
employer, with over half of total employment, and account for some 53% of GDP. In the
agricultural sector, the government is promoting the deregulation of the marketing system,
notably by reducing the number of control boards. Tariffs on agricultural products range
from 0 to 35%, with a simple average of 5.6%. Ceiling bound rates ranging up to almost 400
per cent leave considerable margins for discretionary increases in applied tariffs.

In recent years, merchandise imports have grown
faster than exports. South Africa's exports include machinery, motor vehicles and
fertilizers to African countries, and minerals and agricultural products to developed
markets, mainly Germany, Italy, Japan, the United Kingdom and the United States. South
Africa's main suppliers of imports are Germany, Japan, the United Kingdom and the United
States.

The report notes that even though South Africa
privatized or commercialized a number of public enterprises in the early 1990s, the
process has since slowed down. Several state-owned enterprises hold monopolies or exercise
majority control in various areas, including electricity, water, transport and
communication, mining and quarrying. In the agricultural sector, there are still 14
marketing boards in operation. In the services sector, though the situation has improved
with the restructuring of several state-owned service suppliers and an opening to foreign
investment, the report notes that further liberalization would help raise the
competitiveness of South Africa's exports.

Botswana

Botswana's growth since independence in 1966 has
been impressive, largely due to the performance of the mining sector. The WTO Secretariat
report on Botswana's trade policies states that Botswana's strong economy and export
structure make it the least dependent of the BLNS states on revenue distributions from
South Africa. Liberalization of services, such as telecommunications, finance, insurance
and transport, will help Botswana develop its considerable trading potential. Meanwhile,
the development of new transport routes via Namibia will encourage diversification of
trade. The report notes that given Botswana's potential, the country has an active
interest not only in reforming the internal structure of SACU but also in establishing a
tariff which reduces the current anti-export bias and encourages further opening towards
the broader south African region and to the rest of the world.

Botswana's export trade consists mainly of diamonds
(around 70 per cent of merchandise exports) of which over 70% go to the United Kingdom and
Switzerland. The UK is also the largest market for Botswana's beef exports, which gain
duty-free preferential access under quota to the EU. On the import side, South Africa is
by far the largest supplier. Imports from South Africa, however, include goods from other
sources coming through South Africa to land-locked Botswana.

The report notes that manufacturing activity has
expanded strongly, principally in the textiles and motor vehicles assembly sector. In
regard to services, the telecommunications sector has grown rapidly. Banking services are
open to new competition and tourism is a potential major source of foreign exchange.

Lesotho

A least-developed country surrounded by South Africa
and heavily dependent on it, Lesotho is the poorest member of SACU. Subsistence
agriculture is the main occupation for the majority of rural households. The WTO report
notes that the bulk of rural household incomes in Lesotho comes from wage remittances from
migrant labour in South Africa. Remittances of migrant workers account for over 30% of GNP
- almost 45% of GDP - and represented more than twice the export earnings recorded in
1996. Outward processing in clothing and footwear account for around one-third of earnings
from merchandise exports. Receipts from the SACU customs revenue pool account for over 50%
of budgetary income and more than 70% of recurrent expenditure, the highest among SACU
members.

Lesotho also has preferential access under the Lomé
Convention to the European Union. The clothing industry was, until recently, the main
beneficiary of Lomé preferences, but its export possibilities have become limited because
of rules of origin requirements. Lesotho also has duty-free access to the United States
under the latter's Generalized System of Preference (GSP) scheme. Most clothing and
textile exports to the US are free from quota limitations.

The WTO report notes that Lesotho's high level of
dependence on South Africa for trade and for labour remittances implies that a stable,
outward-oriented structure of the SACU tariff is of considerable importance to it. The
development of Lesotho's economy is likely to depend both on liberal conditions for trade
and investment in southern Africa and in ease of access to other markets for its potential
exports.

Namibia

Namibia has a highly dualistic economy, with a sharp
division between its formal and informal sectors. The WTO report on Namibia states that
its formal GDP depends mainly on mining - diamonds and uranium - and agriculture. The
Namibian economy is very trade-dependent and the customs revenue from the SACU pool
accounts for about one third of its tax revenue. Earnings from mineral exports account for
nearly 60 per cent of total merchandise exports, with diamonds contributing some 40 per
cent. According to the report, increased revenues from diamond and other mineral
exports should enable Namibia to gain greater economic independence within the SACU area.
At the same time, Namibia's trade is becoming increasingly diverse in products and
geographical distribution as its economic development progresses.

A member of SADC, where it is responsible for the
coordination of regional fisheries activities, Namibia is also a member of the Common
Market for Eastern and Southern Africa (COMESA). The report notes, however, that the only
significant trade flows with COMESA members are with Zimbabwe, with which Namibia
maintains a preferential trade agreement. Under the Lomé Convention, Namibia gains
preferential access, subject to quota restrictions, to the EU market for beef. Namibia
also gains GSP access to most developed markets.

Namibia has taken steps to commercialize former
state enterprises carrying out "non-core" government functions and to clarify
the financial relationships between government and parastatal companies to make the latter
more publicly accountable. To date, postal and telecommunications services, tourist
resorts and water supply services have been or are being transferred to state-owned
companies from various government departments. A full privatization programme,
however, is not yet underway.

Namibia's participation in SACU and SADC, implies
that it has strong interest in an outward-looking set of trade policies. The continued
development of revenues from diamond and other mineral exports should enable Namibia to
gain greater economic independence within the SACU area and to strengthen its capacity to
pursue autonomous, but coordinated, interests.

Swaziland

Swaziland's economy is undergoing a period of slower economic growth as companies move
back to South Africa. During the 1980s when many businesses relocated to Swaziland to
avoid economic sanctions against South Africa, Swaziland's economy grew at an average rate
of 7 per cent a year, compared to current and projected growth rates of 3 percent. Capital
investment flows have also slowed significantly.

The WTO report on Swaziland's trade policies and practices notes that South Africa and the
European Union are the country's main trading partners. South Africa was the origin or
transit point for 95 percent of Swaziland's imports and 58 per cent of its exports. The EU
accounts for between 14 and 20 percent of exports, principally sugar which has
preferential access to the EU under the Lomé Sugar Protocol.

According to the WTO's report, Swaziland has
traditionally exported agricultural and forestry products. Food products, drinks
processing and other manufacturing activities are increasing and currently account for
over 35% of GDP. While capital investment in Swaziland slowed during the 1990s,
significant expansion has occurred in existing industries such as refrigerator
manufacturing, wood pulp production and sugar refining.

Swaziland's high level of economic dependence on
South Africa implies that a stable, outward orientated structure for the SACU tariff is of
considerable importance. The report states that the recovery of the economy is likely to
depend on liberal conditions for trade in southern Africa and on the ease of access to
other markets. Swaziland, therefore, has an active interest in the establishment of an
external trade regime that obviates any anti-export bias and encourages integration into
the broader southern African region and the world market.

Notes to Editors :

The WTO's Secretariat's reports, together with
policy statements prepared by SACU member states will be discussed by the WTO Trade Policy
Review Body (TPRB) on 21, 22 and 23 April 1998. The WTO's TPRB conducts a collective
evaluation of the full range of trade policies and practices of each WTO member at regular
periodic intervals and monitors significant trends and developments which may have an
impact on the global trading system. The reports, together with a report of the TPRB's
discussion and of the Chairman's summing up, will be published in due course and will be
available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211
Geneva 21.

The reports cover the development of all
aspects of each of SACU state's trade policies, including domestic laws and regulations,
the institutional framework, trade policies by measure and by sector. Since the WTO came
into force, the "new areas" of services trade and trade-related aspects of
intellectual property rights are also covered. Full reports are available for journalists
from the WTO Secretariat on request. The full text of the WTO Secretariat report is also
available for the press in the newsroom of the WTO website.